Tuesday, 9 May 2017

Energy Firms and the Conservative Government: Centrica The First to Raise Its Head Above The Parapet

Today’s post focuses upon the battle between the leading
energy firms in the U.K. and the Conservative Government who, in a move
designed to show the Government’s focus upon the ‘shared
society’, recently announced that, if successful in the upcoming general
election, the party would establish
price controls upon energy bills. For this post the focus will be on the
details of the Conservative Party’s plans (which admittedly are not detailed at
this stage) and what it may mean in the grander scheme of things: if the Tories
deliver on the pledge it will signal a remarkable turnaround in approach, and
if they do not (or if they dilute the effect) the result will be a clearer
indication – if that is even necessary – that the notion of the ‘shared society’
is nothing more than a soundbite.

In the run up to the general election in 2015, then Labour
leader Ed Miliband announced a ‘freeze’
on energy bills, if he were to be elected, that would last for two years whilst
the sector was reorganised with the aim of promoting healthy competition. The
reason why this post starts with this point is because, today, many media
outlets are keen to point out the similarity
to Theresa May’s current manifesto pledge. Yet, the Conservatives argue that
their policy of putting a
cap on the rate at which energy bills can increase is different to that of
Miliband’s due to a lack of a ‘freeze’ on increases. The bickering between the
two main political parties (maybe
now a contested notion after recent local elections) has continued
unabated, with the Conservatives labelling a similar pledge by the Labour Party
to intervene
in the housing marketplace (in 2014) as ‘Venezuelan-style’
price controls. With regards to the energy-price issue, leading Conservatives
branded Miliband’s plans ‘Wonga-like’ (after the notorious payday loan company),
‘extremely dangerous’, and ultimately ‘Marxist’,
but now label May’s plans as an action to ‘end
injustice’. The political and arguably baseless game-playing which is
dominating this election cycle is a story for another day, but for us here the
focus should be on two things: firstly, the micro-view is concerned with the
effect that this pledge may have upon the marketplace and, consequently, the
public; and secondly, the realisation that should occur if the Conservatives
decide to act on this pledge or not.

Ultimately, the ideological battle taking place in the
energy sector is one that should reveal the reality of the situation to the
public. The pledge by Theresa May to lower energy bills for families by up to
£100 annually will not be seen if the proposed cap is simply raised by a
general raising of prices on behalf of the big six energy companies. However,
the fascinating element will be to see if the British electorate believes in
the Conservative pledge to intervene in the marketplace, which in itself is a
marked reversal of their cherished ideology. If the electorate does follow this
line of understanding, then it effectively nullifies the Labour Party, and what
that means for British democracy is another matter entirely. The focus of many
of these posts in Financial Regulation
Matters is on the Conservative Party for one reason and one reason only; it
is not through any political bias, but only because at this point in time the
Conservative Party are particularly dominant in the British political arena.
However, as the old British saying goes; ‘the proof is in the pudding’, and it
will be for people to realise the effect of believing in this apparent
ideological shift. If, at this point next year, the energy bills for British
homes have increased, then it will be
clear to see that there has been no such shift – but will that even matter? The
energy firms are insistent that they will not lose money because of this, and
ultimately, that is the most telling factor. Yesterday Warren Buffett discussed
the ‘standard
capitalist’ stance in relation to his firm Kraft-Heinz’s failed takeover attempt
of Unilever – discussed previously
in Financial Regulation Matters – and
it is within those parameters that we need to view the recent political
bickering – the ‘big six’ energy firms will utilise every resource they have to
maintain their current
record profit margins and that, unfortunately, is the likely outcome of
this story; soundbites like ‘shared society’ are exactly that… soundbites.

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